FSBOs –The Secret of 'After Settlement Escrow' to Solve Problems

Most FSBOs (people who are selling their own homes) are aware of the
conventional use of escrow. In this article, we look at ways to use escrow to
solve problems.

Escrow

Escrow means different things in different parts of the country. In
California it’s part and parcel of the settlement process. In Virginia, while
there’s no formal escrow before settlement, the settlement agent gathers title
information, draws or has a deed drawn, coordinates with the lender, receives
various inspection reports and in general conducts an informal escrow in the
days before settlement. The difference is that, in Virginia, usually documents
aren’t signed by the parties until they meet at the settlement table. It’s
the use of escrow after this period that we’re concerned with here.

A Problem Rears Its Head

What’s possible varies from state to state, but creating an escrow account
(usually held by the settlement agent) after a home is sold can solve problems.
What sorts of problems? Let’s look at a few.

First of all, let’s assume the buyer or seller needs, or wants, to settle
by a certain date. Lots of things can cause this including the date school
starts, the date a breadwinner starts a new job or the date of settlement on the
seller’s new home.

Now, let’s suppose a problem crops up which would prevent that settlement
deadline from being met. Such problems might be caused by the discovery of
termites and termite damage, the discovery of encroachment on a utility right of
way by a garden shed on the property being sold or the discovery of high levels
of radon gas within the home.

Let’s further suppose that the buyer and seller have agreed on the basic
solution of the problem. In the above examples, typical solutions might be that
the seller will have the home treated for termites and have a licensed
contractor repair the damage. Or the seller will have a contractor move the shed
out of the right of way. Or the seller will install a radon mitigation system.
Of course, everything is negotiable, and a buyer who wants a property badly
enough could agree to fix the defects himself.

What if the pest control company, contractor or the radon mitigation company
can’t finish their work until after the planned settlement date? What happens
then? Most frequently, settlement is delayed until these sorts of things are
taken care of, but sometimes that isn’t desirable. Sometimes delay of
settlement can be a deal killer.

Problem Solving 101

Enter the “after settlement escrow.” The parties agree that an amount of
money (usually a bit larger than the estimate) is set aside in escrow pending
completion of the work. The escrow agent has clear (usually written)
instructions about what must be done before the money is released to the person
who put it up (or before the work is paid for and any excess returned to the
person who put it up).

The funding of an after settlement escrow usually comes from the proceeds of
the sale, so it can be used where there are no funds to take corrective action
any other way. Even if the person responsible could get a loan for the purpose,
the process could take too long to meet the settlement deadline. In that way, it
can be a “cash flow” solution, too.

No matter what problem you encounter, it’s usually possible for a willing
seller and a willing buyer to work things out. Remember that all sorts of needs
can be accommodated without anyone’s being a loser. Situations in which both
buyer and seller are winners happen frequently. With any luck, that’s what
will happen in your case. It just takes creativity and persistence.

Raynor James is with http://www.fsboamerica.org
- providing FSBO homes for sale by owner. Visit our "sell my home"
page at http://www.fsboamerica.org/seller.cfm
to list and sell your home for free for one month. Visit http://www.fsboamerica.org/buyer.cfm
to see homes for sale by owner.